Refer to the figure below to answer the following questions.

Figure 23.2.4
-In Figure 23.2.4, the economy is at point A on the supply of loanable funds curve SLF₀. What happens if disposable income decreases?

Question

Refer to the figure below to answer the following questions.
  
Figure 23.2.4
-In Figure 23.2.4, the economy is at point A on the supply of loanable funds curve SLF₀. What happens if disposable income decreases?

Quizplus · Accepted Answer

If disposable income decreases, individuals will have less money available to save, which will cause a reduction in the supply of loanable funds. This will shift the supply of loanable funds curve leftward to a new curve such as SLF₁. As a result, the equilibrium interest rate will increase, and the equilibrium quantity of loanable funds will decrease. This movement will result in a new equilibrium point, which could be anywhere on the demand for loanable funds curve depending on other factors affecting the demand for loanable funds.

Refer to the Figure Below to Answer the Following Questions